Board leaders should work through nuances to get foreign directors comfortable
By Lindsay Frost
Boards in the U.S. have increasingly added international directors in recent years. As a result, many nom-gov committees are learning how to onboard directors who may have neither lived nor worked in the U.S. before. This comes with language, time and cultural barriers that are important to work through, sources told Agenda.
Generally, directors who have lived in other countries bring a wealth of benefits to companies, sources said. Some 42% of new S&P 500 directors this year spent time working abroad, and 18% are not from the U.S., up from a decade ago, according to Spencer Stuart’s latest board index. Overall, more than half of independent directors on S&P 500 boards have international experience, according to ESGauge.
“Having lived in a different country is really, really valuable to companies, particularly when they have 50% or more of their earnings coming from overseas,” said Janice Ellig, CEO of search firm Ellig Group.
“[Companies] want people who understand the environment [of where they do business] culturally, regulatory issues and have the relationships in those countries. In the last five years, that global experience is increasingly sought after. Even if a company is more domestically focused, they may be pivoting into a new business or expanding.”
Governance professionals encourage board leaders to head up the onboarding process, which should account for certain nuances that apply to foreign board members.
“You have to make sure that the onboarding has a good cadence and schedule and focuses on the issues that will come up, such as the cultural sensitivities, the language, the time zones, the legal and regulatory items, and [include] bringing [the foreign directors] up to speed on the business and industry knowledge,” Ellig said.
Taking the Lead on Onboarding
When it comes to onboarding generally, most companies keep orientation programs in-house — 62.9% of S&P 500 companies have in-house orientation and continuing education programs, while 35.8% use a combination of in-house and outside resources, according to ESGauge.
For example, companies that recently disclosed in-house onboarding programs for board members include Cardinal Health, CommVault Systems, Conagra Brands, Lam Research Corp., Occidental Petroleum and Tapestry, Inc., among others, according to filings.
Sources said board leaders, nom-gov chairs, corporate secretaries and general counsel need to take the initiative to ensure foreign directors, and all new board members, are onboarded efficiently.
It helps when board leaders have international experience themselves, sources said. Indeed, 52.4% of board chairs at S&P 500 companies have international experience, up from 48.7% last year, according to ESGauge. Similarly, 52.5% of lead independent directors have international experience, up from 46.9% last year.
Cultural Considerations
When specifically onboarding a foreign director, there are a number of considerations to keep in mind, sources said.
“Onboarding directors from outside the U.S. involves a careful, well-structured process that addresses not just the regulatory and logistical aspects of their roles but also cultural, communication and inclusion factors,” wrote Julie Daum, leader of Spencer Stuart’s North American board practice, in an email.
“Tailoring the onboarding process … can help international directors acclimate more quickly and effectively, enabling them to contribute their unique perspectives and expertise more fully.”
Cultural nuances are important to focus on, sources said. Boards should consider conducting cultural orientations, including training sessions on the company’s culture, values and norms, as well as the same for broader societal and business practices, Pietro Bianchi, associate professor in the school of accounting at Florida International University’s College of Business and co-author of the paper “Boards of a Feather: Homophily in Foreign Director Appointments Around the World,” wrote in an email. He also suggested mentorship programs, such as a board buddy, to help guide new foreign board members through cultural nuances.
Cultural expectations can impact the way a board chair addresses issues with individual directors, a 2023 study from Insead showed. Some cultures are more direct about performance or behavior, while others prefer to handle such issues “offline.”
Different countries also have different expectations when it comes to the board’s voting on certain matters, relationships with shareholders, relationships with executive teams and other board members, board dynamics, and meeting preparation, the study showed. It’s important to work through those differences and get new directors used to the way U.S. boards handle those issues, sources said.
Also, directors from countries with similar cultural and institutional backgrounds are more likely to integrate smoothly and contribute effectively, Bianchi’s study found. He said the effectiveness of foreign directors “often depends on the institutional, legal, and sociocultural similarities between the director’s
home country and the firm’s country.”
Meanwhile, boards can also take advantage of cultural knowledge that foreign directors bring into the boardroom. If a company is distributing products or services in the country where the individual resides or has resided, that director can share “some of the cultural nuances that the company should be aware of in that part of the world,” Ellig said.
“So it’s a bit of a two-way street,” she added.
Meanwhile, it’s important to get new foreign directors up to speed on U.S. laws and other requirements, sources said.
“The regulations here in the U.S. will be dramatically different from perhaps the regulations in the country from which they come,” Ellig said.
This includes industry-focused regulations, regulations from the SEC, legal precedents, and state regulations from where the company is incorporated, sources said. This should also include training on financial reporting standards, ethical standards and codes of conduct, Bianchi wrote.
Boards also need to ensure compliance with visa and work permit requirements if directors need to travel to the U.S., Daum noted.
She also suggested providing these directors “detailed information on U.S. corporate governance practices,” including those mandated by stock exchanges.
Additionally, directors from outside the U.S. could potentially have some language barriers, Ellig said.
For example, “There can be a little bit of a tension on not just speaking the English language but the acronyms that the company may use to educate that board director on what the language is within this particular sector,” Ellig said.
Whoever is in charge of the onboarding process needs to make sure that “the terms [boards] use translate [accurately] to the person who is in a different country,” she added.
Boards can hold communication workshops to bridge language barriers and “improve cross-cultural communication skills among all board members,” Bianchi wrote.
Ultimately, the shift toward bringing on board members from outside of the U.S. “underscores a deliberate effort to bring in directors with inherent international perspectives, diverse cultural backgrounds and, perhaps, multilingual capabilities, which are invaluable in oversight and challenging assumptions,” Daum wrote.
“These trends reflect a broader recognition of the importance to boards of having international perspectives, especially in an era when global interconnectedness is often a key driver of business success,” she added.
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